SMM Morning Comments (Feb 2): Base Metals Closed Mostly with Losses Following US Rate Hike

SHANGHAI, Feb 2 (SMM) – SHFE and LME base metals closed mostly with losses overnight following the US Fed’s interest rate hike. On the macro front, Federal Reserve Chairman Powell said that progress has been made in easing inflationary pressures, but he still warned that monetary policy will be further tightened. The hawkish speech put some pressure on metals prices.

Copper: LME copper closed at $9,092/mt overnight. Trading volumes were 15,000 lots and open interest stood at 251,000 lots, a decline of 2.42%. The most active SHFE 2303 copper contract finished at 69,240 yuan/mt overnight. Trading volume was 38,000 lots, and open stood at 173,000 lots, down 1.21%.

On the macro front, Federal Reserve Chairman Powell said that progress has been made in easing inflationary pressures, but he still warned that monetary policy will be further tightened. The hawkish speech put some pressure on copper prices. In terms of fundamentals, China’s domestic copper inventory has continued to accumulate. Although the downstream producers have resumed operations, the market purchasing interest remains weak as end-user consumption has yet to fully recover. This, combined with the copper prices hovering at high levels, kept most of the enterprises restocking as required.

On the consumption front, the recent orders have been relatively lacklustre as the market participants just resumed operations following Chinese New Year holidays. Companies are optimistic over future economic improvement. Copper futures prices dropped overnight ahead of an interest rate hike by the Fed and concerns over demand recovery.

Aluminium: The most-traded SHFE 2303 aluminium contract opened at 19,165 yuan/mt and closed at 19,070 yuan/mt overnight, down 80 yuan/mt or 0.42%.

LME aluminium opened at $2,641.5/mt on Wednesday and closed the session at $2,605.5/mt, down $42.5/mt or 1.6%.

Aluminium prices dropped slightly overnight with the Fed’s rate resolution, but the expectations of recovering demand will underpin aluminium price. The short-term focus shall be on European rate hike as well as the progress of power rationing in Yunnan province.

Lead: Yesterday, LME cash to three month lead contract hovered sideways and fell back slightly after rose to $2,174.5/mt. In the later session, LME cash to three month lead contract rose again to $2,174.5/mt, but plunged sharply and fluctuated at a low level. LME cash to three month lead contract finally closed at $2,140/mt, up 0.12%,

Last night, SHFE 2303 lead contract opened at a high level and gradually rose to around 15,380 yuan/mt, but then fell slightly and closed at 15,250 yuan/mt, up 0.49%.

Zinc: Overnight, the Federal Reserve announced a slower rate hikes at 25 basis points as expected. But further rate hikes were hinted on the grounds that the inflation had cooled, but still remained high. The financial conditions will be factored into rate decision, and it is likely that there will be a few more hikes before a pause. No decision was made on terminal interest rates, pointing to no rate cuts this year. The latest market forecast put the probability of the Fed’s raising interest rates by 25 basis points in March at 80%. The terminal interest rate is estimated to reach 4.89% in June, and the rate cuts are expected to be about 50 basis points by the end of the year. The US ISM manufacturing PMI posted a 5-month losing streak in January. Specifically, the figure stood at 47.4 due to falling orders and output, the lowest level since May 2020. The ISM manufacturing report also indicated that the weak demand was ubiquitous across a broad range of industries. That would be seen as another sign of a faltering US economy. In the US, the ADP employment data increased by 106,000 in January, the smallest increase since January 2021. The job vacancies unexpectedly rose to a five-month high. The slowdown in recruitment may provide some relief to the Fed

LME zinc opened at $3,405/mt last night and kept falling before closing down $82/mt or 2.41% at $3,320/mt. Trading volume rose to 7,677 lots, and open interest increased by 234 lots to 210,000 lots. LME zinc inventory reduced by 775 mt to 16,475 mt.

The most-traded SHFE 2303 zinc contract fell to 24,065 yuan/mt after opening lower at 24,380 yuan/mt, and finally closed at 24,005 yuan/mt, down 325 yuan/mt or 1.34%. Trading volume was down to 64,209 lots, and open interest fell by 3,447 lots to 93,442 lots.

The Federal Reserve nailed the interest rate hike at 25 basis points, which was in line with market expectations but continued to disturb the market. At the same time, the US ISM manufacturing PMI posted a 5-month losing streak in January, a signal of sagging demand across many industries. Despite the optimism about China’s market recovery, there are still uncertainties. Under the influence of the macro factors, both SHFE zinc and LME zinc declined overnight. It is expected that SHFE zinc will maintain rangebound.

Tin: SHFE tin opened at a low level and declined last night with few funds of the most-traded SHFE tin contract entering the market.

The domestic tin inventory under SHFE warrants increased slightly and average spot premiums remained low. Trades in the spot market were limited. LME inventory did not change much as the expected import profits were limited. But the quotations of imported tin increased.

In terms of futures prices, the SHFE tin prices opened at a low level and declined to 226,000 yuan/mt. The open interest of the most traded contract increased slightly. The open interest of distant-month contract increased simultaneously and investors continued to roll their positions onto distant-month contract.

To sum up, the tin prices may fluctuate in a wide range in the near future in light with the increasing spot inventory and poor market sentiments.

Nickel: On the supply side, SHFE nickel was strong, and the spot transactions were contained by high spot prices. Nonetheless, the spot premiums fell with upstream players eager to sell. For NPI, the NPI market was well supplied as the NPI plants maintained production during Chinese New Year, while the plants held the prices firm amid optimistic outlook. On the demand side, the social inventory of stainless steel accumulated palpably, and the spot prices stabilised for the moment. The prices of 316L stainless steel rose amid booming ferromolybdenum prices, but there were almost zero transactions. For alloy, high nickel price has weighed on downstream purchases. To sum up, downstream demand was contained by high nickel prices recently, and the fundamentals were also weak amid accumulating social inventory and expected production increment of pure nickel. Nonetheless, the news of the Philippines considering restricting nickel ore exports has made the market worry about nickel supply.

[Disclaimer: The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.]